Cyprus may be on the verge of hammering out a deal to address its chronic debt
crisis but many Cypriots fear that the island’s economy is destined for ruin
regardless.

Nicos Anastasiades, the Cypriot president, and Michalis Sarris, his finance minister, are on their way to Brussels for emergency talks over a deal under which deposits of more than 100,000 euros in the Bank of Cyprus will be hit by a 20 per cent levy.

Deposits of more than 100,000 euros in other banks will be targeted by a four per cent forced levy.

Cyprus’s leaders are expected to submit to the drastic plan - which critics call daylight robbery - in return for a 10 billion euro bail-out loan to save the country from bankruptcy.

While the deal may stave off immediate disaster, many Cypriots said the measures will shatter confidence in the island’s hugely profitable banking and financial services industry and lead to a massive exodus of investors, among them Russian tycoons and British retirees.

Demonstrator Gristakis Georgiou, an employee for Cyprus Popular Bank Pcl, center, reacts during a protest outside the parliament in Nicosia, Cyprus. (Bloomberg)

Islanders also fear that as the bank levies bite, businesses and big investors will have to start laying off staff, heralding high levels of unemployment.

Around 70 per cent of Cypriots are employed in the financial services and banking sector, a number that dwarfs the 20 per cent working in tourism.

“People are worried not just because they could lose their savings but because they could lose their jobs too,” said Ioanna Constantinou, 24, who works in the financial services industry in Nicosia, the Cypriot capital.

“I think a lot of people will be out of work soon and looking for jobs. The young people, especially, will go abroad because you can’t live with this level of uncertainty,” said Miss Constantinou, who like many Cypriots attended a British university. “The banking sector is finished, we have lost all credibility – who is going to want to bring their money to Cyprus now?”

As Cypriots anxiously wait to see exactly what the deal struck in Brussels will entail, shops in Nicosia were all but deserted, with many offering discounts of up to 50 per cent.

Restaurants in the city's picturesque old town are normally jammed at the weekend, but on Saturday night many were all but empty.

“This is the worst day we have had in the 12 years that I’ve been here,” said Pantelis Koutso, the owner of a popular taverna famous for its roasted meat and meze dishes.

Outside parliament, protesters had stuck placards to a fence. "Europe You Failed Me", said one, while another read: "Draghi is Dragging Us Down", a reference to Mario Draghi, the head of the European Central Bank.

“The lesson from what has happened is ‘get your money out of Cyprus’”, said Simos Angelides, a lawyer.

“We had the Turkish invasion in 1974. This now feels like the German invasion of 2013.

“This is going to be a second 1974. People will leave the country. There’s no future here.”

Anti-German sentiment is running at an all time high, with many Cypriots accusing Berlin of making an example of Cyprus as a warning to much larger debt-laden Mediterranean economies, including Italy and Spain, that the German taxpayer will no longer stomach bailing out ailing economies in southern Europe.

“We are the guinea pigs – they are testing the “bail-in” model here before applying it to other countries. They are punishing us and making sure the rest of Europe sees. It’s a public whipping. The only question is, who’s next?” said Mr Angelides.

As Cypriots headed to church on Sunday morning, dark conspiracy theories were swirling around the former British colony.

Many people accused Germany of deliberately trying to bring the country to its knees in order to win a stake in the billions of dollars of natural gas believed to be offshore.

“The talk among a lot of locals is that Germany has engineered this deliberately to scare off the Russians and so that they can get their hands on the LNG deposits. That way we will be forced to turn to Germany as our next sugar daddy. We have been forced to slap the Russians in the face, even though we didn’t want to,” said John Leonidou, a reporter with the Cyprus Weekly, who was brought up in the UK.

“We have always been important strategically, from the time of the Venetians, the Ottomans and the British. We are slap bang in the middle of Africa, Asia Minor and Europe. The gas reserves makes us even more important. But as a commercial centre, we have been destroyed. We will have to pull off a miracle to bring back our credibility.”